Housing Revenue Account Subsidy (Wales)

Jonathan Edwards Excerpts

Wednesday 10th November 2010 Westminster Hall

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

May I begin, Mrs Brooke, by saying that it is a pleasure and an honour to serve under your chairmanship this afternoon?

The topic of my debate is the housing revenue account subsidy scheme, and it aims to highlight one of the great injustices of public housing policy in Wales during the last 20 years. That policy has led to a reported £2 billion in cash terms—not taking into account inflation—of the rents of some of the poorest people in Wales being returned to the Treasury. It has also led to chronic under-investment in the Welsh public housing stock, which is among the poorest and of the worst standard in Europe, with the associated social and health implications. It has deprived our communities of a significant cash investment. Furthermore, it has driven the stock transfer agenda.

With the UK Department for Communities and Local Government scrapping the housing revenue account subsidy scheme for England in September—a decision that we in Plaid Cymru welcome wholeheartedly—there can be no justification for Welsh local authorities having to continue paying around £100 million per annum to the Treasury.

As far as Wales is concerned, the story of the housing revenue account subsidy scheme is one of great incompetence by both Labour and Tory politicians, who have miserably failed some of the poorest people in Wales. Perhaps that is not surprising, as I am reliably informed that only a very few individuals understand the full complexity of the scheme.

As part of the then Conservative Government’s relentless attack on public housing, the Local Government and Housing Act of 1989 led to the confiscation by the Treasury of a large part of the rents paid by tenants. The complication of the new arrangements was hardly helped by those arrangements being labelled as a “subsidy”. My understanding of the word is that “subsidy” should mean some sort of financial benefit, but that was certainly not the case in this instance.

The effect of the 1989 Act was to undermine the attractiveness of public housing by running down its quality, as investment was redirected from local communities. Rents in Wales were lower than those in England—they still remain lower now—and that led to less revenue in general. The quality of housing in Wales is also generally poorer. However, under the terms of the Act, local authorities were forced to return any surplus from expected rent, after operational and maintenance costs were met, to the Treasury, rather than investing those moneys in the housing stock. That had the bizarre effect of promoting the stock transfer of public housing, which is a theme I will return to later.

Perhaps the use of the word “subsidy” comes from the effect of the new arrangements, which meant that those council tenants who were able to pay their rents were, via the new funding mechanism, paying for the housing benefit entitlements of others. Of course, that did not apply to private rented sector tenants or to tenants of registered social landlords.

With HRA payments being used to fund housing benefit, the greater the money that the Treasury could accumulate via the scheme, the less it needed to pay out directly in benefits. Indeed, the 1989 Act allowed UK Government Ministers to set the expected level of rent income from each local authority, as well as the expected level of expenditure on maintenance and management of their homes.

[Guto Bebb (Aberconwy) (Con)]

First, I congratulate the hon. Gentleman on securing this debate. On that specific point, it is also worth pointing out that the decision in 1989 to introduce those changes also meant that there was a more equal distribution of rents among the local authorities in Wales. Indeed, there was a cap on the increase in rents for local authority housing at that time.

[Jonathan Edwards]

The hon. Gentleman makes an honourable point, but I am trying to point out the perverse effects of the 1989 Act and I am sure that he will give me some time to do so.

As I was saying, the 1989 Act allowed UK Government Ministers to set the expected level of rent income and the expected levels of expenditure on maintenance and management of the local authority homes. The policy motive of the UK Government was to drive up council rents while decreasing expenditure on housing, in order to increase the differential and gain maximum financial advantage from the new arrangements. As a result, the quality of publicly owned housing stock in Wales significantly worsened.

The then Secretary of State for Wales, Peter Walker, was guilty of a dereliction of duty of the greatest scale, as Wales was included under the terms of the new arrangements while the Secretary of State for Scotland, Michael Forsyth, refused to sign the Scottish clause, meaning that Scotland was exempted from the 1989 Act. Considering that housing benefit is a UK function, there was no reason at all why Scotland should have been excluded and Wales included, apart from the ineptitude of the Wales Office and its Conservative occupants—if the hon. Member for Aberconwy (Guto Bebb) will forgive me for saying so.

New Labour being new Labour, it continued the policies of the previous Tory Government on public housing for the first three years after the 1997 election. In 2000, however, following a backlash among local authorities, the UK Government introduced proposals to amend the scheme without legislation. To end the deduction of rents from local authorities, the Treasury introduced in each housing revenue account an amount for spending on the renovation of properties. That new budget line was called the major repairs allowance and it was set at a level to ensure that local authority expenditure exceeded rental income, with the immediate effect of halting the Treasury’s rent grab.

The increase in funding brought about by the MRA for England was from UK Government sources and the UK taxpayer, and hence a Welsh equivalent should have been introduced by increasing the block grant by the Barnett formula. However, and critically, those new changes were only applied to England. In what has been described as “the year of the great mistake” by Paul Griffiths, a former Labour Welsh Government special adviser, in an excellent Bevan Foundation article, for some reason the Treasury again decided to make Wales a special case and Labour, which was in control of the Welsh Government, totally missed the significance of the changes applied to the HRA in England. As a result, since devolution, Wales has lost a further £1 billion, with an average of around £100 million per annum being siphoned off from council rents in Wales.

It is true that the Welsh Government could have made a unilateral decision and left that money with the councils, but as devolution guidance notes insist that any policy decision must be neutral in its impact upon the Treasury that would have meant that the Welsh Assembly Government had to find a further £100 million from its already underfunded Budget to give to the Treasury. Therefore, that is a change that can be made only with Treasury consent.

We in Plaid Cymru continuously make the case that Wales is ill-served by the UK Government. The Barnett formula continues to underfund Wales to the tune of £300 million per annum. We welcome the announcement of a review of the formula, which will take place shortly, although for the life of me I cannot see why that review has to take place after the referendum. However, given its attitude on Barnett and other issues, it is no surprise to us that the Treasury would consider Wales as an afterthought in relation to the introduction of the MRA in England in 2000.

The gross incompetence of the Welsh Government of the time is less easy to understand. Quite how successive Welsh Ministers and Welsh civil servants have failed to challenge the inequity of the situation is beyond me. With a Labour-controlled Welsh Government more concerned with placating their London masters, it is hardly surprising that the people of Wales are being let down so badly. Indeed, it has taken a Plaid Cymru Housing Minister to put this issue on the agenda at all. In short, the Treasury, under Labour control, threw a hospital pass to the Welsh Government in 2000, with a tragic £1 billion consequence for some of the poorest communities in my country.

In 2004, the Welsh Assembly Government created its own MRA out of its own funds, which further confused the issue. It meant that around £100 million was diverted from other areas of devolved responsibility each year, when the right course of action was to demand what was rightfully Wales’s from the Treasury. Therefore, despite the introduction of the Welsh Government-sponsored MRA, the Treasury continued to rake in their £100 million per annum from the HRA scheme in Wales.

As I mentioned earlier, one of the direct consequences of the HRA scheme has been to make the sale of publicly owned housing far more attractive, either under the terms of the right to buy or by the wholesale selling off of stock to registered social landlords, because housing associations are not covered by the scheme and are free to spend this money as they see fit on improving housing stock.

To date, the local authorities of Bridgend, Ceredigion, Merthyr, Newport, Monmouthshire, Rhondda Cynon Taff, Gwynedd, Torfaen and Conwy—the local authority of the hon. Member for Aberconwy—have all transferred their stock to housing associations, with many more local authorities seeking to follow the same path, due to their inability to access funds to help them to meet the Welsh housing quality standards set for 2012.

[Guto Bebb]

On that specific point, it is interesting to note that some local authorities in Wales have identified the issue and embarked upon stock transfer as a means by which they can invest in repairing the properties that they hold. Indeed, it is very interesting that Gwynedd council, which is actually controlled by Plaid Cymru, has also followed that procedure. However, I am sure that the hon. Gentleman will concur that it is interesting how often local opposition to such a move has been led by Labour politicians. In view of how the Labour Government in Wales failed completely in 2000 to address that issue, is it not surprising that local Labour politicians have been so opposed to those stock transfers?

[Jonathan Edwards]

The hon. Gentleman makes an excellent point. It is a shame there are no Labour Members here to debate that issue with us. Of course, he and I have divergent views on stock transfer. I will return to the situation in my home county of Carmarthenshire later.

[Guto Bebb]

My understanding is that Plaid Cymru party members are extremely supportive of the stock transfer undertaken in Gwynedd. In the county of Conwy, which I have the pleasure of representing, it has been deemed a great success, even though Labour party members opposed the decision.

[Jonathan Edwards]

The hon. Gentleman makes a point. To be honest, there is a debate within the party about the merits of stock transfer. I, for one, am not as persuaded as some of my colleagues in the north of our great country may be.

The stock transfer agenda has been driven by the denial of funds to Welsh local authorities that would not necessarily have wanted to go down that path, because of the housing revenue account subsidy scheme. The HRA scheme has therefore had the undoubted effect of driving greater change in Wales than was ever envisaged, and, in my view, not necessarily a change for the better.

My local authority, Carmarthenshire county council, which is keen on keeping its housing stock, was recently forced to borrow money in order to introduce its housing plan to keep its stock in public ownership. If the money from the council’s own rents had been available to it, it would not have needed to borrow money; it could have used the revenue generated by its stock’s rents. As a ring-fenced account, money collected in this way can only be used on housing. Why is that option simply not available for local authorities in Wales?

Due to the scale of the situation, it is perhaps surprising that the Treasury was unable to provide details of the HRA contribution made by Welsh local authorities when I asked a parliamentary question on the subject in July. Thankfully, it seems the Welsh Government are better at keeping records of that sort of financial transaction. Their response to my freedom of information request made clear the scale of the great rent robbery.

As the Treasury has been unable to provide the figures, it will be useful for the record and indeed for the Treasury’s records if I outline each Welsh local authority’s contribution in cash terms since 1999. If I may try the patience of the House, Mrs Brooke, the figures are, to the nearest million: Blaenau Gwent, £12 million; Bridgend, £16 million; Caerphilly, £70 million; Cardiff, £139 million; my home county of Carmarthenshire, £51 million; Ceredigion, £15 million; Conwy, £14 million; Denbighshire, £32 million; Flintshire, £62 million; Gwynedd, £53 million; Ynys Môn, £23 million; Monmouthshire, £33 million; Neath Port Talbot, £52 million; Newport, £75 million; Pembrokeshire, £63 million; Powys, £60 million; Rhondda Cynon Taff, £2 million; Swansea, £56 million; Torfaen, £71 million; Vale of Glamorgan, £56 million; Wrexham, £110 million. Merthyr was the only Welsh council in surplus of £5 million. If the Minister wants, I can provide an annual breakdown for each year since 1999, but I might try his patience a bit too much.

[Guto Bebb]

Do the figures quoted date from 2000 onwards, or from the 1989 decision?

[Jonathan Edwards]

From 1999, because the Welsh Government can provide figures only since devolution, but 2000 would have been the benchmark.

Considering the pressure on housing waiting lists, it is sobering to think that if those moneys had been retained over the past decade, 10,000 brand-new family houses could have been built in Wales, all eco-friendly and built to modern specifications. That could have helped address major social justice issues such as fuel poverty. Some 30% of households in Wales, not just those living in public stock, are in fuel poverty. We could have addressed Wales’s terrible legacy of poor housing and associated poor health. The money could also have provided enormous benefits for the local construction economy, which is part of the backbone of Welsh employment, and improved the circulation of money inside some of the poorest communities in Wales.

I am informed that by now the Treasury will have received a letter on the issue from the Welsh Minister for Business and Budget and Deputy Minister for Housing and Regeneration. The letter encloses a report by Professor Wilcox, an expert on housing finance. I have not been privy to that report, but I believe that it argues that Wales should have parity with Scotland. I agree, as I hope will all parties in Wales.

Furthermore, the new UK Government’s decision to scrap the housing revenue account for England this September means that there is no justification whatever for the Treasury’s insistence that the scheme should continue to apply to Wales alone. Such is the inequity and injustice at the heart of the whole affair that I believe, as I said in a recent early-day motion, that the Treasury should make reparations based on the real-terms amounts of money accumulated over the past two decades. At the very least, the Treasury must make a clear statement that the provisions of the HRA and the great pillage of Welsh rents are to cease with immediate effect.

In terms of the UK Budget, this ever-decreasing figure, which lessens every time a local authority transfers its housing stock, is small, but to the tenants who must make do with poorer-quality housing than they deserve and the local authorities that want to provide new and better-quality housing for their residents, it is a significant amount. This is not just the right thing to do; it is the best thing to do and the fair thing to do. Diolch yn fawr.